2017 (3) TMI 97 - AT - Income Tax

Revision u/s 263 - addition u/s 68 - Held that - As during the course of assessment proceedings specific details were called for by the Assessing Officer about the bank statement and source of cash deposits in the bank which has been duly replied by the assessee with the total figure of cash withdrawal and cash deposits to justify that the sources of cash deposits were out of the cash withdrawal made prior to it. Even copies of cash book and bank statements were available on record for perusal. Commissioner of Income Tax u/s 263 has mentioned that the assessee has explained that the deposits made in the banks are out of the cash withdrawals during the year. However, the assessee has not explained as to why he has kept withdrawing the cash from the bank and then depositing it again throughout during the year. He has accepted that assessee had explained about the source of deposits but Assessing Officer had failed to examine these aspects which seems to us very contradictory. Once when CIT has accepted that proper explanation has been given by the assessee to the Assessing Officer then he cannot take the basis of inadequate inquiry and can direct the Assessing Officer to perform. Thus as when the Assessing Officer has conducted proper enquiry and has examined the relevant records before taking the final decision or framing the assessment order then in such circumstances ld. Commissioner of Income Tax cannot invoke the power u/s 263 of the Act for directing to frame assessment afresh. The assessment order u/s 143(3) dated 23.12.2010 is neither erroneous nor prejudicial to the interest of Revenue and accordingly we set aside the impugned order passed by ld. Commissioner of Income Tax u/s 263 of the Act - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the Income-tax Act, 1961.
2. Addition of cash deposits under Section 68 of the Income-tax Act.
3. Levy of interest under Sections 234A, 234B, 234C, and 234D.
4. Initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of the order passed under Section 263 of the Income-tax Act, 1961:
The primary issue was whether the assessment order passed under Section 143(3) was erroneous and prejudicial to the interest of the Revenue, warranting revision under Section 263. The Commissioner of Income Tax (CIT) observed that substantial cash deposits totaling ?39,48,493.58 were made in the assessee's bank account without a satisfactory explanation for their source. Additionally, the CIT noted that interest on a loan for shop purchases was claimed against rental income, although the shops were not rented out. The CIT issued a show cause notice under Section 263, directing the Assessing Officer (AO) to reframe the assessment after comprehensive inquiries and reconciliations. The assessee contended that all necessary details, including bank statements and cash books, were provided during the original assessment, and the AO had duly verified them. The Tribunal found that the AO had made proper inquiries and had verified the details before finalizing the assessment. Therefore, the Tribunal held that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue, setting aside the CIT's order under Section 263.

2. Addition of cash deposits under Section 68 of the Income-tax Act:
The second appeal challenged the addition of ?39,48,493/- under Section 68, which was confirmed by the CIT(A). The assessee argued that the cash deposits were sourced from earlier withdrawals and cash on hand. The Tribunal observed that during the original assessment, the AO had called for and verified the necessary details, including the source of cash deposits. The Tribunal concluded that the AO had made a proper application of mind and had thoroughly examined the details before finalizing the assessment. Consequently, the Tribunal found no justification for the addition under Section 68 and allowed the assessee's appeal.

3. Levy of interest under Sections 234A, 234B, 234C, and 234D:
The assessee contested the levy of interest under Sections 234A, 234B, 234C, and 234D, arguing that it was not justified. However, as the primary issues regarding the validity of the assessment order and the addition under Section 68 were resolved in favor of the assessee, the Tribunal did not specifically address the interest levy issue in detail.

4. Initiation of penalty proceedings under Section 271(1)(c):
The assessee also challenged the initiation of penalty proceedings under Section 271(1)(c). Given that the Tribunal set aside the CIT's order under Section 263 and allowed the appeal against the addition under Section 68, the initiation of penalty proceedings under Section 271(1)(c) was rendered moot.

Conclusion:
The Tribunal allowed both appeals of the assessee, setting aside the CIT's order under Section 263 and the addition under Section 68. As a result, the issues of interest levy and penalty proceedings were not further addressed.